Glossary
A letter from the seller qualifying the warranties in the sale agreement by setting out known issues, so that a disclosed matter cannot found a warranty claim.
Key Documents
The centrepiece of any acquisition is the share purchase agreement (SPA) or, for asset deals, an asset purchase agreement. The SPA sets out the price, payment mechanics (often completion accounts or a locked box structure), and the warranties and indemnities that allocate risk between buyer and seller. The disclosure letter qualifies the warranties by setting out known issues — if the seller fails to disclose a material fact, the buyer may have a warranty claim. Ancillary documents include tax covenants, transitional services agreements, and any restrictive covenants preventing the seller from competing post-completion.
The Lawyer's Role
Lawyers on an M&A deal are not bystanders drafting paperwork — they shape deal structure and risk allocation from day one. Buyer-side counsel runs due diligence, negotiates warranty and indemnity protections, and advises on conditions precedent. Seller-side counsel prepares the disclosure letter, pushes back on overly broad warranties, and manages the data room. In practice, junior associates spend significant time on DD workstreams — reviewing hundreds of contracts, flagging change-of-control provisions, and summarising findings for the partner. Understanding the commercial context behind each clause is what separates a strong trainee from a competent one.
SPA (Share Purchase Agreement)
The primary contract governing the sale and purchase of shares in a target company, setting out price, warranties, and completion mechanics.
Due Diligence
The investigation process where a buyer examines a target's legal, financial, tax, and commercial position before committing to a transaction.
Warranty
A contractual statement of fact by the seller about the target company — if untrue, the buyer may claim damages for the resulting loss.
Indemnity
A pound-for-pound reimbursement obligation for a specific identified risk, offering stronger protection than a warranty claim.
Completion Accounts
A price adjustment mechanism where the final purchase price is determined by accounts drawn up shortly after completion, reflecting the target's actual financial position.
Locked Box
An alternative pricing mechanism where the price is fixed by reference to a set of accounts at an agreed date before signing, with protections against value leakage.
Condition Precedent
A requirement that must be satisfied (e.g., regulatory approval) before the parties are obliged to complete the transaction.
Material Adverse Change (MAC)
A clause allowing a buyer to walk away if a significant negative event affects the target between signing and completion — heavily negotiated and rarely invoked.